This past week, the Florida Legislature passed Senate Bill 2A in both the House and Senate. The bill was then signed into law by Governor Ron Desantis last Friday. Let’s look at some of the major items contained in the bill.
Reinsurance
One of the biggest challenges facing insurance carriers writing Wind Coverage in Florida is the lack of reinsurance capacity. For carriers to provide coverage of Florida properties they need a robust reinsurance marketplace to back-stop their risk. Increased catastrophic events, both in Florida and Globally, have dealt these reinsurance companies significant losses over the last five years. Average Catastrophic Losses in the United States alone have increased to an average of over $70B during that time period. That increase is more than three times larger than the average the prior five years. This increase in losses has caused reinsurance companies to pull back the amount of capital they are willing to risk. in certain markets, including Florida. Projected losses from Hurricane Ian and Nicole only add to the unfolding crisis.
The new legislation creates a $ 1 billion reinsurance fund using the Florida Optional Reinsurance Assistance (FORA) Program. This will provide optional reinsurance solutions for Florida insurance carriers having difficulty building out their reinsurance programs.
FORA is not going to fix all state reinsurance issues, but it does indicate to the broader marketplace that the State of Florida is committed to being a major part of the solution going forward which is vital to getting both insurance carriers and reinsurance carriers to come back into our market.
Attorney's Fees
One of the biggest cost drivers in the current homeowner’s insurance marketplace has been increased litigation cost for property claims. Florida represents 8% of the litigated property claims nationally but over 75% of the costs. These costs were unsustainable.
The new legislation will repeal one-way attorney fee statutes for litigated property claims. The repeal, legislators felt, would take significant cost risks out of the current marketplace, stabilizing existing carriers and making it more appealing for other carriers to enter the marketplace.
The repeal of one-way fees should have an immediate stabilizing effect on the current homeowner’s marketplace and we feel, if the legislation holds, will begin to reduce rates in the 3rd or 4th quarter of 2023.
Citizens' Reform
Citizens Insurance Company is a residual market created by the State of Florida to assist in difficult market swings. Backed by the state (i.e. Florida taxpayers), the intent was for Citizens to be a short-term solution, not the preferred carrier of choice. With the recent market difficulties, Citizens has seen a massive increase in the number of personal and commercial insureds seeking coverage. The influx has placed a heavy burden on Citizens and thus on Florida taxpayers. If Citizens sustains losses that are more than its capital/reinsurance, then the State of Florida will require all carriers insuring risk in Florida to assess their policies to address any shortfall. Those assessments are then passed on to the policy holders.
The legislation also addresses the mass migration of insureds to Citizens through a number of strategies, including increasing the thresholds for eligibility, increased rates, and requiring homeowner policyholders to also secure flood coverage. The hope is these strategies will slow the migration to Citizens and allow the carrier to address its current financial risk.
The state is also working on a depopulation strategy for Citizens involving working with private carriers to take on insureds. Depopulation from Citizens is not new. Some five years ago a similar push helped move hundreds of thousands of insureds to other admitted carriers.
Claim Filing Deadline
Under the old law, insureds could file a property claim up to two years from the expiration of their policy. The new legislation moves that to one year. This reform makes it easier for carriers to manage loss certainty related to expired policies and helps them negotiate terms with reinsurance partners. It also places more burden on the insured to assess damage related to storms or other events.
Will this help?
The answer is yes, and maybe. Some of the changes will have an immediate impact on stabilizing the market and, in time, moving premium costs lower for both homeowners and commercial property owners. Some elements of the legislation may require tweaking and/or additional financial commitments to truly get more insurance/reinsurance carriers to commit significantly to Florida, but this feels like a major step in that direction. As has always been the case, the solution will require the entire industry to work together.
Florida is a great place to live and one of the most important insurance marketplaces in the world. Driving the cost of coverage to a more affordable level for Florida citizens and business owners so they can protect what matters most to them is the most important part of this recent effort. It, therefore, benefits the citizens of Florida, the State of Florida, and the insurance industry to work together to resolve this crisis.
